Courts Gone “Irrationally Biased” in Favor of the Federal Arbitration Act?—Enforcing Arbitration Provisions in Standardized Applications and Marginalizing Consumer-Protection, Antidiscrimination, and States’ Contract Laws: A 1925–2014 Legal and Empirical Analysis
Spanning nearly forty years, the Supreme Court has issued multiple decisions and stated categorically that “judicial hostility to arbitration” was the sole impetus behind Congress’s decision to enact the Federal Arbitration Act of 1925. In fact, before the FAA, systemic trade-specific problems and practices generated heated disputes and widespread litigation among merchants and trade organizations. Thus, to arrest those constituents’ concerns, Congress enacted the FAA. Briefly, under the FAA section 2, arbitration is mandatory if a contractual arbitration provision is valid and a controversy “arises out of the contract.” However, common-law rules of contract formation are equally clear: Standing alone, standardized-preprinted application forms are not valid contracts; thus, they not enforceable. Yet, megacorporations, international holding companies, and international financial-services corporations are increasingly fashioning standardized application forms—which contain mandatory arbitration clauses. Put simply, the consequences of such practices are severe: Before contracts are formed, applicants for goods, services and employment—ordinary consumers and workers as well as small-business owners, start-up entrepreneurs and prospective franchisees—are forced to relinquish their rights to litigate common-law and statutory claims in state and federal courts. Even more unsettling, a judicial split has evolved: Most federal courts enforce arbitration clauses in applications and a majority of state courts do not. Based on the compelling and unexpected legal, empirical and statistical findings surrounding the dispositions of motions to compel arbitration in state and federal courts, the Article encourages Congress to address the concerns raised here and enact the recently proposed Arbitration Fairness Act of 2014.